Black Coffee: Keep the Tip

It’s time to sit back, relax and enjoy a little joe …

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.

I’ve got another busy weekend ahead of me, so let’s get right to this week’s commentary …

Wise men don’t need advice. Fools won’t take it.

– Benjamin Franklin

Credits and Debits

Debit: Did you see this? The latest government survey found that American consumer confidence was down more than expected in September and is sitting at a four-month low. The respondents said they’re most concerned about their future financial stability due to persistent inflation, sticky high interest rates, and ongoing recession fears. Imagine that. Quite frankly, the public seems kind of sour on the stock market right now too – although to be fair, some sectors more than others …

Debit: The lack of consumer confidence is also showing up in the US housing market, where the average 30-year mortgage interest rate in the US is almost 8% and at its highest level since 2000, while mortgage applications are at their lowest point since 1995. No, really. So somebody needs to tell that to sellers who are reluctant to lower asking prices – at least so far.  After all, there are only so many eight-figure jobs out there …

Debit: The fact that starter homes throughout much of America are unaffordable for young people indicates that that most US jobs are no longer able to provide a middle-class lifestyle. And raising the minimum wage to $20 an hour for unskilled entry-level jobs isn’t going to change that – although, not surprisingly, California politicians seem to think otherwise. Instead, that’s just more proof that the entire system is spiraling into the abyss. Oh … and speaking of spiraling into an abyss:

Debit: Generally speaking, when economic times get rough, American investors flock to Treasury bonds as a safe haven – that, in turn, drives yields lower; it also results in falling stock market prices. However, despite the occasional down day in equities, that’s not happening this time around. In fact, the usual economic indicators steadfastly remain at odds with each other. The question is: Which market will blink first?

Credit: Macro analyst Peter Schiff says the market confusion is another sign that the stock market seems to think the Fed can manage the economy without collapsing everything. But here’s the rub: Schiff says that although “the Fed has been able to successfully kick the can down the road, it has now caught up with it and there’s a fork in the road: Either the Fed keeps fighting inflation and causes an economic and banking-sector meltdown, or it pivots by cutting rates – but that would mean even more inflation.” Yeah … but at least the additional printing will continue to distort US GDP to make it look even larger than it actually is. So there’s that.

Credit: If you’re still wondering if the average American citizen has confidence in the US dollar – not to mention US fiscal policy in general – look no further than what has been going on at Costco over the past couple of weeks. This isn’t so-called sophisticated “gold bugs” cleaning out Costco’s inventory of one-ounce gold bars in record time; this is ordinary housewives and retirees who are just trying to make ends meet who feel that something isn’t quite right with the economy. Although maybe the biggest surprise is that Costco isn’t selling 400 oz. bars instead.

Credit: According to legendary macro analyst Jim Grant, interest rates follow generational cycles. As such, he believes the most recent 40-year bull market in bonds is now transitioning into a generational bear market that should last until at least 2060. In fact, generational four-decade bond market cycles have been regularly occurring since the US Civil War. As a result, Grant says, “what we’ll see is a period of long-trending higher rates with head-fakes that will convince people that 2% is right around the corner.” Yep. As for those of you wondering about inflation’s chances of ever getting back to the Fed’s 2% benchmark, well … it’s kind of like ordering a steak.

Debit: Of course, it’s hard to argue with Mr. Grant when you look at a long-term chart of both the 10- and 30-year Treasury bonds. The trouble is, 40 years of increasingly lower interest rates for these bonds have steadily blown bubbles in the prices of everything – but especially homes and the stock market. This begs the question: Just how big will the coming corrections be after those markets finally realize that debt is only going to get more expensive from here?

Debit: On a related note, high-yield bonds are dealing with the double whammy of higher interest rates and a slowing economy. Keep in mind that billions of dollars have been invested over the past few years by yield-starved investors desperately searching for investment income. But now bond prices are falling – and the pace seems to be picking up. Then again, that’s not the only thing that seems to be picking up …

Debit: In other news, after the March collapse of Silicon Valley Bank and two other financial institutions, the Fed introduced an emergency facility known as the Bank Term Funding Program (BTFP), which allowed banks to “temporarily” offload their underwater Treasury bonds and mortgage-backed securities to the central bank for their full value. The BTFP provides a liquidity lifeline to distressed financial institutions when their wary depositors lose confidence and make a run on the bank. In essence, the BTFP is the only thing keeping participant banks afloat. Isn’t that great? If only the Fed offered a similar service to the average American stock holder.

Debit: By the way, the BTFP is scheduled to end in March of next year. However, the current bank participation rate suggests the Fed will be forced to extend it, as use of the BTFP for banks remains at record highs around $108 billion and shows no sign of receding anytime soon. In other words: Those who think the banking crisis is over should probably think again. But don’t worry … the Fed has lots more tricks up its sleeve.

Credit: All of these problems take us back to the Costco gold rush. As blogger QuothTheRaven notes, “if you think that’s crazy now, (just) wait. So far, markets have been pretty orderly, but it’s a mathematical certainty that won’t continue. He goes on to note that those gold bar purchases will look like the early days of COVID when savvy shoppers were “buying face masks at stores like Sherwin-Williams and hand sanitizer at Aldi. Weeks later, people were beating each other up for toilet paper. If you think the same ‘oh shit’ moment can’t happen with gold, then you’re sorely mistaken.” Sadly, most people will be.

By the Numbers

Meet “the Sandwich Generation” – a growing group of Americans who are sandwiched between caretaking both their kids (often 18 or older) and aging parents (65+). Here’s a closer look at the results of a recent study on the Sandwich Generation:

26% … of US adults who are sandwiched between taking care of their children and their aging parents

2 Texas’ rank among US states with the highest proportion of Sandwich Generation adults. (33%)

39% … of California adults are caring for at least one parent and one child – that’s more any other state.

$725 The average amount that Sandwich Generation adults spend each month to support their parents.

15% The percentage of household income the average Sandwich Generation adult spends to support their parents.

46% … of Sandwich Generation adults say their financial situation is getting worse.

61% … are concerned about the future.

63% … of all US adults are looking to either move in with their parents or have their parents move in with them in the next five years.

Source: Hire a Helper

Last Week’s Poll Results

How big is your home?

• 1500 to 2500 sq. ft. (49%)
• More than 2500 sq. ft. (27%)
• Less than 1500 sq. ft. (23%)

More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that half of you live in a home that is between 1500 and 2500 square feet; that jives with the median US home size of 2014 square feet. As for yours truly, my home is 2048 square feet. Frankly, I’m glad it isn’t any bigger than that!

If you have a question you’d like me to ask the readers here, send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.

The Question of the Week

[poll id="495"]

Useless News: Fine Dining

The customer in the Italian restaurant was so pleased with his meal that he asked to speak to the chef. So the owner proudly led the happy diner into the kitchen and introduced him to the chef.

“Your veal parmigiana was superb,” the customer said. “I just spent a month in Italy, and yours is better than any I ever had over there.”

“Naturally,” the chef said. “Over there, they use domestic cheese. Ours is imported.”

(h/t: Susan)

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More Useless News

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Letters, I Get LettersEvery week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com

After reading my article explaining why Miracle Whip doesn’t belong on a tuna sandwich, John F. Hutchison left this comment:

You’re right! Miracle Whip doesn’t belong on a tuna sandwich; so hold the tuna.

You know, John … this is a perfect opportunity to share a fish pun, but I think I’ll leave it to salmon else.

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Photo Credit: public domain